PayPal adds loans to its e-commerce lineup

Merchants who accept PayPal for online payments can now turn to the payments unit of eBay Inc. when they need a business loan.

PayPal says its Working Capital program will focus on small and mid-sized businesses—mostly eBay marketplace sellers, says Darrell Esch, vice president and general manager of small and medium business lending at PayPal. He says the lack of access to working capital is a top concern of eBay sellers. “As we’ve gone out over the years and asked our sellers what is it that they need, what are the barriers to growth, access to working capital and affordable working capital comes up time and time again,” he says.

Sellers can apply for a loan online, get approval and have the funds appear in their PayPal accounts in minutes, Esch says. Merchants can borrow up to 8% of the value of the transactions processed for the merchant by PayPal annually, and the maximum loan amount is $20,000, he says. Esch says the ability to get funds the same day the retailer applies is a key difference between Working Capital and business loans available to smaller sellers from other providers.

The loan repayment method is also a differentiator. Loan payments are taken as a percentage of PayPal payments processed on the borrower’s behalf each day. The borrower selects a set daily percentage at the outset of the loan ranging from 10% to 30%, and then PayPal takes that percentage out of the merchant’s daily PayPal transactions. So if a merchant selects 10% and gets $1,000 in PayPal sales on Monday, PayPal takes $100 as repayment. If the merchant has zero sales on Tuesday, PayPal takes no payment. There is no set payoff date for the loans. The fixed loan rate offered to borrowers at the purchase of the loan will vary according to their individual qualifications, Esch says.

The Working Capital program launched Sept. 24, and PayPal has marketed it via e-mail, banner ads, direct mail and some telemarketing to about 90,000 merchants so far, Esch says. The loans are available only to merchants in the United States, although Esch says PayPal intends to eventually offer business loan options to markets globally. He says PayPal tested a similar program to merchants in the United Kingdom this summer.

WebBank, an industrial bank, underwrites the Working Capital loans, using transaction data provided by PayPal as part of the loan qualification process. WebBank is the lender behind PayPal’s alternative payment service Bill Me Later.

Esch declines to say how many PayPal Working Capital loans have been issued thus far, but says early feedback from merchant feedback has been positive.